Zim­babwe’s money runs out, so does mu­gabe’s power

Kuwait Times - - BUSINESS -

HARARE:

In Zim­babwe, where worth­less $100 tril­lion notes serve as re­minders of the per­ils of hy­per­in­fla­tion, Pres­i­dent Robert Mu­gabe is print­ing a new cur­rency that jeop­ar­dizes not just the econ­omy but his own long grip on power. Six months ago, the 92-year-old an­nounced plans to ad­dress chronic cash short­ages by sup­ple­ment­ing the dwin­dling U.S. dol­lars in cir­cu­la­tion over the past seven years with ‘bond notes’, a quasi-cur­rency ex­pected at the end of Novem­ber.

Ac­cord­ing to the Re­serve Bank of Zim­babwe (RBZ), the bond notes will be of­fi­cially in­ter­change­able 1:1 with the US dol­lar and should ease the cash crunch. The cen­tral bank also promised to keep a tight lid on is­suance. Af­ter a 2008 multi­bil­lion per­cent in­fla­tion­ary melt­down caused by ram­pant money-print­ing, many Zim­bab­weans are skep­ti­cal. The plan has al­ready caused a run on the banks as Zim­bab­weans empty their ac­counts of hard cur­rency.

In­ter­nal in­tel­li­gence brief­ings seen by Reuters raise the pos­si­bil­ity that the bond notes, if they crash, could spell the end of Mu­gabe’s 36 years in charge. A Sept. 29 Cen­tral In­tel­li­gence Or­ga­ni­za­tion (CIO) re­port re­vealed the pow­er­ful army was as un­happy as the rest of the pop­u­la­tion with the new notes and had told Africa’s old­est leader to “wake up and smell the cof­fee”. “Top se­cu­rity of­fi­cers have told Mu­gabe not to blame them if Rome starts to burn,” the re­port said. Reuters was un­able to de­ter­mine the au­thor of the re­port. It is also un­clear if Mu­gabe has seen the re­port, whose fi­nal au­di­ence is not spec­i­fied. Mu­gabe’s spokesman did not re­spond to re­quests for com­ment, nor was the CIO avail­able. But the re­port of­fers a rare glimpse into the think­ing of Mu­gabe’s se­cu­rity forces - the back­bone of his power - and their con­cerns about the im­plo­sion of what used to be one of Africa’s most promis­ing economies. “Mu­gabe was openly told that the bond notes are go­ing to cause his down­fall,” the re­port said.

WAIT­ING FOR THE DROP

The notes’ first test will come in the in­for­mal for­eign ex­change mar­kets on the streets of Harare. If they fall heav­ily in value, they are likely to un­leash an in­fla­tion­ary spi­ral that could bleed the bank­ing sys­tem of its last few dol­lars and wipe out Zim­bab­weans’ sav­ings for the se­cond time in less than a decade, economists say.

The same hap­pened in 2008: pow­er­ful in­di­vid­u­als with ac­cess to dol­lars at the of­fi­cial 1:1 rate were able to buy bond notes at a dis­count on the unofficial mar­ket and then con­vert them back to dol­lars at face value. “You start with one dol­lar, then you’ve got 10, then you’ve got 100, then you’ve got 1,000 - and it’s not even lunchtime,” said John Robert­son, one of Zim­babwe’s most re­spected pri­vate economists.

In Harare’s chaotic Road Port bus sta­tion, the main ter­mi­nus for those head­ing to and from South Africa, Zim­babwe’s big­gest trad­ing part­ner, some bus op­er­a­tors are fear­ing the worst. Re­quired to pay nearly all their ex­penses - fuel, road tolls and po­lice bribes in Zim­babwe and South Africa - in hard cur­rency cash, they are par­tic­u­larly ex­posed.

“It’s like be­ing on death row. You don’t know when the hang­man is go­ing to open your cell door,” said ticket-seller Simba Muchenje, pulling a wad of worth­less 2008 Zim­babwe dol­lars from his brief­case and toss­ing them onto the counter. “It’s just tak­ing us back to the bad old days.” In in­ter­views, none of eight money-chang­ers trad­ing South African rand and US dol­lars said they would ac­cept bond notes at their $1 face value be­cause of fears of im­me­di­ate de­pre­ci­a­tion. The rand and the US dol­lar have be­come Zim­babwe’s cur­ren­cies since the lo­cal dol­lar was scrapped in 2009.

“The banks may say 1:1, but here we say 2:1. We can’t af­ford to pay the same as the banks. I’m run­ning a busi­ness, not a bank,” said Pa­tience, a 32-year-old money-changer.

RE­AS­SUR­ING WORDS

Given Zim­babwe’s re­cent his­tory of hy­per­in­fla­tion, the RBZ is keen to al­lay fears the print­ing presses are about to go into over­drive, and that the bond notes are a round­about route to a new Zim­babwe dol­lar. “The in­tro­duc­tion of bond notes does not mark the re­turn of the Zim­babwe dol­lar through the back door,” it said in a state­ment on its web­site.

In­stead, the bank has pre­sented the notes as a 5 per­cent “ex­port in­cen­tive” - a top-up added by the cen­tral bank to the ac­counts of those re­ceiv­ing for­eign ex­change ei­ther from over­seas re­mit­tances or via farm­ing, man­u­fac­tur­ing and min­ing ex­ports. They will also be backed by a $200 mil­lion “loan fa­cil­ity” from Afrex­im­bank, a Cairo-based lender owned by the African Devel­op­ment Bank and dozens of African gov­ern­ments and cen­tral banks. — Reuters

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